Mail & Guardian reporter
Surging oil prices – which may push the cost of petrol to more than R3 a litre by April – have come as an overdue reminder to industrialised countries of just how dependent their economies still are on a single source of energy.
And, more to the point, how little they have done about it since the last energy crisis.
In South Africa, the high fuel prices have pushed up headline inflation to 8,1%, just as it seemed to be settling around the 7% mark.
Plans by the Ministry of Finance and the Reserve Bank to introduce inflation targeting at 6% could be severely strained should the current oil prices persist.
It is ironic that just when the West is starting to feel confident that it has emerged from the hyperinflationary effects of the last oil crisis more than 25 years ago, it could be faced with a new one.
No one who lived through the consequences of the previous oil shock would want to see one again.
Quite apart from electricity cuts and queues at the pumps, it was responsible for numerous, dire knock-on effects, including wages chasing prices in an upward spiral that triggered economic recession and price inflation of well over 20%.
The world economy, though outwardly robust, could easily succumb to a stock market crash induced by the pricking of the Internet share bubble. If oil prices continue to zoom, it will be doubly vulnerable.
Yet what is the right price for oil? We all want it cheap at source -to stem inflation and prevent producers from making unearned fortunes – yet expensive at point of sale – to discourage profligacy and provide revenues to support the welfare state.
Even at $30 for a 27-gallon barrel – and transported half way round the Earth – oil works out at only 65 cents a pint.
Try buying mineral water at that price.
If left to “market forces”, with producers freely supplying the needs of consumers, oil would undoubtedly be much cheaper than $30 a barrel.
But very cheap oil would be the economics of myopia.
As recently found oilfields in the West run down – with no obvious new discoveries to replace them – we will become increasingly dependent on the Organisation of Petroleum Exporting Countries (Opec)as their share of the global market rises steadily above 50%.
Russian oil and gas (the profits of which bankrolled the Chechnya war) will account for much of the rest.
There have been too many false alarms in the past about the speed at which non-Opec reserves would be run down. This has spawned complacency.
But in the longer term, there is no doubt that the balance of power will swing decisively to the East.
What should be done? Two vital things, for a start. First, Opec must be politely reminded that it is a cartel and that abuses of power by a cartel (such as its current, artificially low production quotas) cannot be tolerated, especially in a world driven by free trade and globalisation.
Saudi Arabia, the world’s biggest oil producer, is expected later this year to join the World Trade Organisation, the very body that ought to be investigating cartels that do not operate in the (international) public interest.
Second, the surge in oil prices should be taken as a wake-up call to the West to redouble its efforts to find alternative sources of energy against the day when oil runs down.
Two areas offer outstanding potential but need far more resources thrown behind them.
They are the development of hydrogen (the waste product of which is water) as a fuel to drive cars; the other is solar energy, where interesting advances are being made.
Even in less sunny climates like the United Kingdom, solar energy has big possibilities.
But in “sunshine-rich” developing countries, the potential is truly huge.
To fulfil this potential may require a degree of (unfashionable) planning between the private sector, governments and academia, but it has to be done, and quickly.
The long-term consequences of not doing so are almost too terrible to contemplate.